Final Report Study on Microcredit Interest Rates in Mexico May 2017 Final Report Study on Microcredit Interest Rates in Mexico Fondo Multilateral de Inversiones Miembro del Grupo BID ContenidoContents List of abbreviations ..................................................................................................................... 6 Foreword ................................................................................................................................... 7 Acknowledgement ......................................................................................................................10 Executive Summary.................................................................................................................... 11 Final Report 1. Preface ..............................................................................................................................14 2. Levels and trends in Microcredit Interest Rates ................................................................22 3. Level of the components of the interest rate and its trends ..............................................30 4. Considerations around microcredit demand .....................................................................50 5. Efficiency of the structure of the interest rate ...................................................................58 6. Conclusions .......................................................................................................................64 7. Annexes ............................................................................................................................68 Bibliography ..............................................................................................................................87 ContenidoList of tables and figures Figure 1. Growth of national gross domestic product 2000-2016 (Annual Growth Rates) ....................15 Figure 2. Case Study: Compartamos Bank ............................................................................................18 Figure 3. The Evolution of the Gross Loan Portafolio and and Non performing Loans 2006-2015 (amounts in thousands of pesos) ............................................................................................................19 Figure 4. Distribution of Interest Yield per year.......................................................................................22 Figure 5. Distribution of average Interest Yield ......................................................................................23 Figure 6. IMFs Interest Yield 2006-2015 ................................................................................................23 Figure 7. Interest Yield Peer Group Patterns .........................................................................................24 Figure 8. Herfindahl Hirschman Index 2006-2015 .................................................................................26 Figure 9. Distribution of components by percentage of IY (%) ..............................................................30 Figure 10. Operating Cost Ratio ............................................................................................................31 Figure 11. Operating Cost Ratio .............................................................................................................31 Figure 12. Operating Cost Ratio by Peer Group ....................................................................................32 Figure 13. Distribution of subcomponents as a percentage of Operating Costs (%) .............................34 Figure 14. Personnel Expense Ratio .....................................................................................................34 Figure 15. Personnel Expense Ratio .....................................................................................................35 Figure 16. Personnel Expense Peer Group Patterns ............................................................................36 Figure 17. Cost of Funds Ratio ..............................................................................................................38 Figure 18. Cost of Funds Ratio ..............................................................................................................38 Figure 19. Cost of Funds Peer Group Patterns .....................................................................................40 Figure 20. Evolution of the Non Performing Loan Portfolio ...................................................................41 Figure 21. Loan Loss Expense Ratio .....................................................................................................41 Figure 22. Loan Loss Expense Ratio .....................................................................................................42 Figure 23. Loan Loss Expenses Peer Group Patterns ..........................................................................43 Figure 24. Profits Ratio ..........................................................................................................................44 Figure 25. Profit Ratio ............................................................................................................................44 Figure 26. Profits Peer Group Patterns .................................................................................................46 Figure 27. Average loan size in LA .......................................................................................................47 Figure 28. Distribution of credits per loan size .......................................................................................47 Figure 29. Average loan size per methodology .....................................................................................48 Figure 30. No. of credits per methodology .............................................................................................48 Figure 31. Distribution of credit portfolio by level of marginalization ......................................................48 Figure 32. Distribution of the adult population with access to credit ......................................................50 Figure 33. Distribution of Loan Portfolio per gender ..............................................................................51 Figure 34. Average loan size per gender ................................................................................................51 Figure 35. Distribution of loans by economic activity .............................................................................52 Figure 36. Average loan size per economic activity ...............................................................................52 Figure 37. No. of credits per size ...........................................................................................................53 Figure 38. Average loan per size (amount) ............................................................................................53 Figure 39. Distribution of the number of loans per State .......................................................................54 Figure 40. Distribution of Loan Portfolio per State .................................................................................54 Figure 41. Distribution of clients per level of income .............................................................................54 Figure 42. Number of credits per level of marginalization .....................................................................55 Figure 43. Average credit per level of marginalization ...........................................................................55 Figure 44. Average Elasticities associated with the estimation .............................................................58 Figure 45. Definition of Financial Indicators ...........................................................................................69 Figure 46. Sample distribution by Institution Age ...................................................................................70 Figure 47. Sample distribution per Institutional Size ..............................................................................70 Figure 48. Sample distribution per Legal Status ....................................................................................71 Figure 49. Sample distribution per year .................................................................................................71 Contenido Figure 50. Government Programs to Strengthen the Microfinance Sector ............................................72 Figure 51. Results of the Generalized Least Squares Estimation ..........................................................74 Figure 52. Average Elasticities associates with the estimation ..............................................................74 Figure 53. Results of the Estimation of Generalized Least Squares with institution age variable .........75 Figure 54. Results of the Generalized Least Squares Estimation with Market Concentration Variable ........75 Figure 55. Operating Expense Ratio .....................................................................................................76 Figure 56. Operating Expenses Peer Group Patterns ...........................................................................77 Figure 57. Regulatory Expense Ratio ....................................................................................................78 Figure 58. Regulatory Expense Ratio ....................................................................................................79